Background

The main provisions of the Consumer Rights Act 2015 came into force on 1 October 2015, with later provisions commencing on 1 April 2016 in relation to consumer transport services contracts (rail, air, sea and inland waterway transport).

Despite the main focus applying to retailers, the Act also applies to consumer insurance contracts and the insurance market should be aware of its impact, particularly in respect of:

  1. Digital content
  2. Supply of services
  3. Unfair contract terms including ancilliary contracts
  4. Enhanced enforcement powers

Digital content

A number of insurers now offer digital content as part of their insurance offering to consumers. For example, a private medical insurance policy may offer an app from which members can manage their health and membership benefits and find their nearest hospitals. 

Under the Act, digital content forming part of the insurance package (including apps and whether the service is paid or free to policyholders), must be of satisfactory quality according to the expectations of a reasonable person (this will depend on the nature and use of the digital content and will be different for different digital products). The insurer or broker must ensure that any such digital content is fit for purpose and maintained. For example, if the digital content is not available for a significant period of time, the policyholder may have a right to repair and/or to a price reduction (even if the digital content itself is free of charge). 

Remedies also exist where digital content causes damage to consumer devices, for example where a virus affects the app.

Supply of services

Insurance is not expressly excluded under the Act, but the Act applies only to the extent that the service provided is not subject to separate existing legislation that provides for more extensive consumer rights than under the Act. As a result, the impact of the provisions on the supply of insurance services is likely to be limited given the extensive rights already set out in financial services legislation and the Financial Conduct Authority Rules. 

It is unclear how the Courts will interpret how the various pieces of legislation and rules interplay with each other. For example, the Insurance Conduct of Business Rules require claims to be paid “promptly”, as opposed to within a reasonable time as is required for the performance of services (e.g. claims payments) under the Act. It may be that “promptly” is considered to be a higher standard than “within a reasonable time”, however, the remedy under the Act is greater than that under ICOBS so which provides the greater consumer rights? This question might be resolved by the Enterprise Bill, if passed, which will amend the Insurance Act 2015 to include an implied term in all insurance policies that claims will be paid within a reasonable time and to provide for damages to payable where claims are paid outside of the reasonable time. 

What constitutes reasonable time will be a question of fact, but insurers need to be alive to the fact that any unnecessary delays in providing services may result in a breach of the Act.

Unfair contract terms

The Act clarifies the existing law, merging consumer protection rules under the Unfair Contract Terms Act 1977 with the Unfair Terms in Consumer Contract Regulations (SI 1999/2083). Both consumer notices and consumer contracts are covered by the Act. 

Consumer notices may be written or oral and include announcements and other communications that are intended to be read by the consumer. Renewal notices, for example, would amount to a consumer notice.

The Act maintains the position that any unfair terms in consumer contracts or notices must be prominent to the average customer and transparent to avoid an assessment for fairness. Thus they must be expressed in plain and intelligible language and, when in writing, must be legible and brought to the customer’s attention in such a way that the average customer would be aware of it. Further guidance is expected from the Government as to the meaning of “prominent” for the purposes of the Act. 

The Act also adds to the so called “grey list” of terms that are presumed to be unfair including:

  1. Disproportionate cancellation charges;
  2. Terms enabling the insurer/broker to determine characteristics of the subject matter of the contract after it has been concluded; and
  3. Terms allowing the insurer/broker to determine the price after the consumer has been bound.

Enhanced enforcement powers

Under the existing legislation, if an insurer is found to be using policies containing unfair terms, the Competition and Markets Authority or the Financial Conduct Authority may require an undertaking from the insurer that they will amend the term and/or bring injunction action to force the insurer to stop using the term. 

However, the Act amends the Enterprise Act 2002 to provide for new consumer redress measures including: 

  1. Compensation to consumers who suffer as a result of the unfair terms
  2. Termination 
  3. Collective interest measures of consumers where they cannot be identified. 

The Act also extends to bodies who may act as private enforcers (as specified by the Secretary of State), which can include consumer bodies. 

Finally, the Act enables consumers to bring collective actions before the Competition Appeals Tribunal where the claims relate to the same, similar or related issues of fact and law.

Conclusion

Although its application to the insurance market may be limited, there are aspects of the Act that insurers and brokers should be aware of. As technology plays a greater role in the insurance industry, firms need to ensure that, before they offer apps to consumers, they are safe, secure and reliable to avoid any potential penalties. Further, contract terms and notices should be regularly reviewed to ensure that they are fair and compliant and that all services are carried out within a reasonable time.

The Act, together with the Consumer Insurance (Disclosure and Representations) Act 2012 amends the legal landscape for insurers and brokers offering consumer insurance policies bringing the law and regulation closer into alignment.